As the rising cost of traditional health care continues to be a concern for organizations and its employees across the country, more are turning to alternative options to curb costs. One option that has been discussed recently is reference-based pricing. Although this model has been around for quite some time, it is now gaining more popularity in light of the current state of health care.

With reference-based pricing, an employer agrees to pay a fixed amount or reimbursement for a defined medical service, rather than using a traditional insurance carrier to negotiate discounts from the provider. In this case, an employer partners with an administrator that targets reimbursement rates based on a percentage of what Medicare would pay the provider for this same service, which is typically lower than the discounted rate negotiated by the insurance carrier. Because this allows the organization to set and better control costs, there are several financial benefits associated with reference-based pricing. However, in order to reap those benefits, there are a few things to keep in mind.